July 31, 2012

Yesterday's adoption of the dollar-sign ticker symbols as company identifiers by Twitter (the "cashtag") could be interpreted several ways.

Some viewed it as a business threat to StockTwits, from whom Twitter "hijacked" the approach. But I view it more as validation of StockTwits, as the clear leader in social finance.

For those not familiar with the $ ticker designations, StockTwits, realizing it needed a simple way to tag tweets to companies devised a simple approach. By placing a $ in front of a ticker symbol, the tweet's author would be tagging it to that company. In essence, while "man" may refer to a person, $man would indicate a comment about the company Manpower. The $ is the clue used to disambiguate true tickers from simple words.

That was four years ago, and the $ticker approach has become ingrained for many of us. In fact, I find it a useful short-form alias for a company, often using it in email and other communications outside Twitter.

Unique identifiers have always been a critical part of the financial information business. Proprietary identifiers like CUSIP numbers, used for trade settlement, have generated huge license fees for Standard & Poor's (and the enmity of many of those paying the fees). Meanwhile, companies like Alacra have developed a strong Concordance business, simply matching both proprietary and public keys to their underlying companies.

While Twitter, StockTwits, Facebook and others are clearly not being used to conduct financial transactions, their success as a market data platform depends upon their ability to filter and group content around a company.

As such, Twitter's adoption of the StockTwits form reinforces StockTwits position as the leading real-time financial communications company. Unlike S&P, who wield ownership of identifiers as a source of licensing income, StockTwits is well-served allowing others to adopt its format. In fact, providing an API so others can do ticker lookups by company names (and supporting various name variations, e.g. Research in Motion, RIM, RIMM, etc) would further entrench them as the source for online company identifiers.

So, does this threaten StockTwits' core business? Not at all. StockTwits founder Howard Lindzon notes that while "Twitter is about advertising dollars... Stocktwits provides context, curation and community."

That difference is critical. It's the reason why, if you want analysis of a company, you don't start with a Google search. Twitter is a powerful communications platform. But that's because I follow a carefully curated list of people whose insights I value. And it's why their trending topics, while interesting at the macro level, rarely provides any compelling insights when you click into the underlying tweets.

For the novice user, the easiest way to see the value of StockTwits is to monitor a company page during its earnings announcement. It's amazing to watch hundreds of users dissect a 10Q from Apple or Yahoo in real-time, posting their comments to the StockTwits stream. One person may dive directly into footnotes, another to the balance sheet, while the third identifies issues not being presented. There's no comparable experience in the analog world. And that experience would be less valuable, not more valuable, if there were a million random users sharing comments at the same time.

Stocktwits succeeds because of self-selection (only those with an interest in finance participate), curation and professional moderation. You don't need to expose someone's email address to be banned from StockTwits. Just demonstrate that you're not acting in accord with the rules of the community and you will be bounced.

So while Twitter cashtags may lead to some short-term confusion among casual users, the establishment of the StockTwits syntax as the de facto standard is a big win in the long run.

April 07, 2011

One sign of the bubble (or, perhaps the pending apocalypse) could be the fact that the so-called Twitter Hedge Fund is oversubscribed by 250%. The Derwent Absolute Return Fund sought to raise $40m, but apparently has commitments of over $100m.

This fact should not come as a huge surprise. The Derwent fund capitalizes on three hot trends:

Social media, specifically Twitter

Big Data

Algorithmic trading

Yet I am convinced that we will later look back at this fund as a prime example of a frothy market and nothing more.

Perhaps the simplest way to see that this fund is selling hype more than anything else is to look at the relative size of the Twitter logo vs. their own branding on their home page.

In fact, the Twitter logo on the Derwent page is more than twice the size of the logo on Twitter's own home page. That's no accident. Clearly, they are appealing to investors who want to get "in on Twitter" whatever that may mean.

Anyone who has done any extensive text analytics can tell you how sentiment analysis remains far from an exact science.

At its best, using professionally authored content, the best statistical models for sentiment generate results in the 70-80% range. But even those are questionable. As an example, let's look at a NYT article announcing the recent news that AT&T would acquire T-Mobile.

What's the sentiment of that story?

Well, as I read it, it's largely positive for AT&T and for Deutsche Telekom (parent of T-Mobile), neutral for Verizon, negative for Sprint, positive for Wall Street investment banks and largely negative, though with some positives, for mobile consumers.Of course, a sentiment engine will assign it a somewhat meaningless score - perhaps it's 0.5777234 positive.

Now, that's with "professionally authored" content. So let's take a look at some tweets around the deal. Using Topsy (which searches the Twitter archive), I looked at tweets from March 20-21 that mention both AT&T and T-Mobile.

The results were mostly just news headlines, rewritten or retweeted, like these:

There were a few ironic or humorous comments, of course, like this one:

I'd rate that as a negative sentiment about AT&T, but not specifically about this deal. Regardless, I doubt that the sentiment engine would parse the irony well.

Beyond the difficulty of assigning sentiment to tweets, there's a much bigger issue at play. If you look at the patterns of tweets what you find is that most are reactive rather than proactive. An event occurs, the news media puts out a story, then many others RT that story. That may be an effective way to share news and information among the masses, but from an algo standpoint I'm less convinced. Traders trade the story when it first hits (or, as the axiom goes, they buy the rumor then sell the news). Twitter sentiment is likely to be a lagging indicator, at least in the real-time world of algo trading.

I understand that the investment strategies are based on research, like this paper by researchers at Indiana University, but it's not that difficult to draw correlations when backtesting with almost any set of data. I'm pretty sure that we will look back at this as one more data point for the tech bubble.

February 02, 2011

A few weeks ago we did a soft launch of a "stream" of Alacra Pulse M&A Rumors on the StockTwits platform. StockTwits has been doing a quiet rollout of the Streams, which will launch with more visibility soon.

This morning, StockTwits' Phil Pearlman wrote a blog post spotlighting a couple of deals that were uncovered by Pulse early on before the market reacted:

The first deal involved Smurfit-Stone Container (SSCC) being acquired by Rock Tenn (RKT), which was announced January 24. As Phil notes in the post, on January 20, Alacra Pulse pushed out notification that Smurfit-Stone would be a good acquisition target, based on a blog post from Footnoted. Investors who bought the stock at the market close on the 20th would have seen better than a 25% return.

A similar case occurred with Genoptix (GXDX), acquired by Novartis (NVS) also on the 24th. Two weeks earlier, the Pulse M&A Rumors Stream noted that Genoptix was rumored to be in-play. Investors buying on the close that day would have gained 27% on the stock.

Through our partnership with StockTwits, we can push these Pulse Streams, previously available only to institutional clients, out to a broader market of active traders and investment professionals.

To learn more about the Pulse M&A Rumor Stream on StockTwits, visit the StockTwits Marketplace and sign up for a free trial.

January 17, 2011

The initiative that has gotten the most attention is that they will begin to share revenue with contributors, at a rate of $10 per thousand page views. The revenue share comes at a cost, however. Only posts that are exclusive to Seeking Alpha are eligible for the revenue share, and contributors must grant Seeking Alpha an exclusive license to use that content in perpetuity in any way that it wishes. Reuters blogger Felix Salmonaddresses that issue in great detail on his blog, so I won't dig into it in great depth here, only to say that for most professional bloggers, who syndicate their content via Seeking Alpha, this will not be an attractive option.

Second, they've announced a revamp in their "leader boards", now providing more granular rankings, showing the most popular bloggers by category, rather than the old leader board which provided overall rankings by number of followers.

Third, and perhaps most significant for most contributors, is that they have begun to post actual page view counts for their contributors. For example, in the Internet category, the Alacra Pulse Check blog was the 4th most viewed source for the past 90 days, generating 33,100 page views.

While the revenue share will likely appeal only to a small subset of Seeking Alpha bloggers (primarily those who post only on SAI today), gaining some visibility into usage is important to all of us. Unlike some aggregators, who post only a snippet from a story (our own Alacra Pulse, for example), Seeking Alpha includes the full text of each post on its site. That's good for Seeking Alpha (and probably for the reader) but it leaves publishers in the dark as to how their content is being used.

Publishers and bloggers typically syndicate their content to Seeking Alpha to drive brand awareness, since there's little reason for users to click back to the native site. By providing usage stats, Seeking Alpha has begun to quantify for publishers the value of that brand awareness.

While providing exclusive content to Seeking Alpha doesn't make sense for Alacra today, gaining visibility into usage is a big improvement on the site and the most important of the new features in my opinion.

May 06, 2010

Yesterday’s announcement by the Washington Post of their intention to sell Newsweek should come as no surprise. In fact, it wouldn’t have shocked me to see them announce they would simply shut it down. Yet many traditional media analysts still seem surprised by the news.

Time and Newsweek have held prominent positions in media history. For decades, it truly mattered what topic they chose to adorn their covers each Monday. In a world where news was dominated by the evening newscast, these two publications truly influenced the national agenda. But it’s been at least 15-20 years since either publication was truly relevant. As David Carr asked in a tweet yesterday, when was the last time you picked up a copy of Newsweek other than in a dentist office?

The impact of real-time news cannot be dismissed. Looking at the Newsday announcement itself, the first tweets appeared yesterday around 10:45am in a tweet by Anthony Edgecliffe-Johnson. Within 15-20 minutes, I’d seen 40-50 comments on the announcement in my tweetstream. In fact, when I saw a tweet “announcing” the sale yesterday afternoon around 2:30pm by Steve Rubel, I recall thinking “why is he tweeting old news as though it were just breaking?”.

I realize, of course, that only a small number of consumers are Twitter users, but cable news has the same impact. How many people have seen the photo of the Times Square bomber already? Would you buy an issue of Newsweek or Time next Monday if his picture were on the cover?

I can only think of three weekly news-oriented magazines which remain relevant to a wide audience. The Economist is successful largely on the quality of their writing, their willingness to do long-form stories which lend themselves to deeper analysis, and the fact that they bring a global (or at least European) perspective to world events. New York Magazine remains relevant because it covers stories that others don’t. They don’t have a new focus, though certainly have elements of news in their pages. For New Yorkers, they provide a mix of who, what & where that remains important, though I can see them threatened in the long run by various blogs from Gothamist to Gawker. The New Yorker remains relevant for some of the same reasons as the Economist. Long-form stories, often on topics barely touched on elsewhere, combined with fiction from top writers make the New Yorker a good read.

Newsweek certainly has some quality writers, Jonathan Alter and Fareed Zakaria among them. Yet their format doesn’t provide a forum for these writers to do quality investigative journalism. How much of a difference in quality shows through in a 500 word story? Let’s face it- Rolling Stone has probably produced more relevant and impactful articles on politics and finance in the past year than Time and Newsweek together.

Of course the key parlor game question is “who will buy Newsweek?” I’ll play along with a few suggestions (apologies to those who saw me tweet these yesterday morning – I guess blog posts can seem old compared to real-time tweets).

First, I’ll dismiss the one that many others have suggested. I don’t see any likelihood that Bloomberg will buy Newsweek. Yes, they have a lot of money and just bought Business Week, but their efforts to reach a wider audience don’t go as wide as Newsweek. Bloomberg wants to reach the corporate C-Suite, not Main Street. The new Bloomberg BusinessWeek gives them a great vehicle, in print and online, to do that, while providing more commentary to deliver through their terminals. Newsweek provides neither. So, those hoping to see a BloombergBusinessNewsWeek masthead will be disappointed.

News Corporation (NWS) could buy Newsweek. During its heyday, Newsweek was always a center-left publication, as compared to the more right-leaning Time under Henry Luce. From an ego standpoint, I can imaging Rupert Murdoch’s delight in moving Newsweek aggressively to the right. I can imagine his enjoyment in letting Glenn Beck or Sean Hannity sit behind the desk formerly inhabited by Ben Bradlee. Yet I see this as unlikely. Fox has print vehicles already (most prominently the WSJ) and I don’t see Newsweek as ultimately that attractive.

The Huffington Post or Politico should buy Newsweek. These alternative media have grown tremendously. HuffPo traffic is now ranked 10th among news with more than 13 million uniques in March. They have aggressively moved beyond politics, covering world events and local news. Yet the brand perception remains as a left-leaning political site. The Newsweek brand could bring instant credibility with a wider audience. While the print side of the business may not be that attractive, I could see where keeping print alive might bring them some advertisers they would otherwise not reach. If not, they could easily shut down the print operations a year or two from now, keeping the brand as an online-only news product.

For magazine publishers, the long-term question may be the one posed by Mathew Ingram:

Hopefully trade rags like Adweek and Mediaweek have already given some thought to their business model, but they might want to change their names while they're at it. And, in the world of real-time news, will we soon be saying that Women's Wear Daily and Investors Business Daily sound too static?

April 21, 2010

There’s been a lot of talk this week about how the SEC’s case against Goldman appears somewhat flimsy and that 2 of the 5 commissioners voted against bringing the suit. Yet I wonder, how important is it that the SEC wins its suit?

Regardless of how the legal battle turns out, it’s pretty evident that Goldman was not acting in the interest of the clients to whom it peddled the deal. Whether or not Goldman’s behavior was illegal will be left to judge and jury; whether its actions were unethical will be decided in the courts of public opinion and by its clients.

Regardless of whether they win their case, the SEC will achieve its goal of exposing unethical behavior that flies in the face of Goldman’s purported “customer first” culture.

At the same time, it’s likely that the SEC will bring charges against other firms, perhaps Deutsche Bank for the Magnetar deal.

This will strengthen the SEC; Mary Schapiro has already demonstrated a much more aggressive approach to enforcement than Chris Cox or, certainly, Harvey Pitt. I think that it will also make CEO’s of financial institutions approach their business differently. No longer will the signoff of the firm’s general counsel be enough to say that something is legal; unethical behavior can bring punishment as well.

It’s already apparent that derivatives regulation is getting a new bounce from this and will likely be part of a banking reform package more likely to now pass. Meanwhile, Goldman is likely to have some fallout from clients, particularly public pension funds.

Now, there are many who will argue that the SEC (or any regulatory body) is overstepping its bounds by using litigation as a means to punish, even if they don’t believe they will ultimately win. But the regulators are working from a position of weakness. Policies of the past decade, combined with budget cuts have lessened their authority and effectiveness. Meanwhile firms often see fines as simply the cost of doing business.

But it wasn’t the $16m fine that has so damaged Toyota and it won’t be the dollar value of any ultimate fines handed down by the SEC that hurts Goldman, Sachs. The only real asset a financial institution has is its reputation and, win or lose, the SEC has already tarnished the appearance of 85 Broad.

March 19, 2010

In a court ruling yesterday, US district judge Denise Cote ruled against financial content aggregator TheFlyontheWall.com, barring them from distributing analyst recommendations from three key banks in near-real time.

The suit was brought by BarCap, BofA Merrill Lynch and Morgan Stanley, which argued that the service should not be allowed to republish their upgrades and downgrades until at least four hours have passed from publication and not before noon each day.

Under the judge’s ruling, theFlyontheWall will be barred from publishing such recommendations before 10am for reports published prior to the market open (9:30am) and within 2 hours of publication for those issued during market hours.

The ruling could have serious implications for news services and blogs which often write about analyst recommendations soon after publication. The judge’s ruling did leave a bit of a window, saying that reporting the analyst changes in the context of market movement would be ok (for example, to report that PALM stock was down 20% on Canaccord Adams downgrade). Specifically:

Theflyonthewall.com won’t violate the injunction if it refers to the banks’ recommendations “in the context of independent analytical reporting” of a significant market movement on the same day, the judge wrote.

Unsurprisingly, the ruling has caught the attention of financial bloggers.

Barron’s Tiernan Ray writes “The question for myself and others, such as my friend and colleague Eric Savitz, over at the Tech Trader Daily Blog, is how much room the ruling gives bloggers and reporters to write about what’s already moving stocks pre-market or throughout the day.”

He asks the logical follow-up question:

So, does that mean that before 9:30 am, Eastern, I and others should refrain from even referencing analysts’ equity research reports regarding stocks?

The Globe & Mail's Streetwise blog points out that while BarCap, Merrill and Morgan may have sued, many firms actively seek the exposure provided by having their recommendations published:

The banking industry is pretty split on the practice. Some firms send research immediately to media organizations (including this one), while others still try to protect analyst reports so that they have more value to select clients - the ones who pay the bills by generating trading commissions.

For those that encourage media reports, the tradeoff is a little free publicity, and in general the pendulum has been swinging that way.

The ZeroHedge blog, whose servers host TheFlyontheWall service, responds in their typically snarky way in a post with a title too long for Twitter:

This is merely a case of picking on the weakest: the next ones to lose their First Amendment right will be, in order of importance, StreetAccount, Thomson Street Events, Briefing, and, ultimately Bloomberg. The reason: keep the market as two-tiered as possible so that clients of the above three banks (which list will likely expand promptly as more banks join in) have an upper hand over all the slower retail and algo operations. With this forced lag in information (which is a joke because anyone who cares, knows the second a research report goes public anyway), and with the ever increasing transaction times courtesy of nanosecond collocation facilities, soon the self-cannibalizing market will only rely on stealing money from those accounts who are still willing to participate in a market that is now split into two distinct groups: those who make money, and are clients of MS, ML and Lehman (and the rest of Wall Street), and everyone else.

February 09, 2010

Morningstar (NASD:MORN) has acquired Footnoted.org, the blog-based financial research service that reads through footnotes of SEC filings, spotlighting the items that companies prefer investors not see.

Congratulations to Footnoted.org founder Michelle Leder, who has tirelessly read through more filings in the past seven years than most analysts do in a lifetime. Following the acquisition, Michelle will continue to run Footnoted under its new parent.

January 12, 2010

There’s no “Dummies Guide” for bailout recipients, but at
some point there will be a few interesting HBS case studies in how poorly banks
handled the public relations aspects of the bailout. I find it amazing at how
tone-deaf the leaders at these major financial institutions can be.

The latest response is their shock that the Administration
might look to assess financial institutions with a risk-based tax in an effort
to recover more of the TARP payments. The banks argue that they’ve repaid their
TARP bailout with interest, so why should the government come back for more?

What the banks do not seem to understand is that the bailout
was not simply another financial transaction. Without those bailouts, many of
these financial institutions would simply not exist. It’s not enough to simply repay the bailout
loans then return to your old ways.

Whether or not they truly feel grateful for the lifeline,
leaders at these financial institutions should express gratitude. I also think
they should put their arrogance in check. I can only speak for myself in saying
that destroying tens of billions of dollars in shareholder value would be a
humbling experience.

How might the banks have handled the situation better?
Here’s a start:

Show up in Washington when you are beckoned by
the President. It’s pretty pathetic when you make auto CEOs on private jets
look like the “good guys”.

Take a serious look at your core business. Have
some of the “best and brightest” at your firm focus on how you can return to making
small business loans and helping homeowners restructure their mortgage. I’m not
suggesting a permanent change in your business, but perhaps diverting a bit of
your focus in the short-term away from proprietary trading.

Take an honest look at your compensation
policies to ensure you are rewarding behavior that is in line with long-term
shareholder value. Yes, it’s possible you might lose a handful of superstars,
but you’ll survive. Remember that the bonuses paid by Lehman and Bear this
month will be zero. That could have been you, had the taxpayer not stepped in.

Stop thinking that you’re a master of the
universe. Take a look in the mirror. Remember that you and your peers destroyed
more shareholder value than anyone in our history. You built a business driven
by factors you barely understood and could not control. Look in the mirror
again. Still impressed?